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BHP Billiton sees rocky road ahead

BHP Billiton is bracing for continued volatility in European and Chinese markets as the global miner manages increased regulatory pressures.

The chief executive of the world’s biggest mining company, Marius Kloppers, on Thursday told shareholders he expected ‘‘short term’’ instability, similar to that of which shaped the 2012 financial year results.

‘‘We believe the volatility we experienced during the last financial year will continue in the short term, as concerns surrounding the instability of the eurozone and the concerns on China’s growth continue to weigh on market sentiment,’’ Mr Kloppers told the annual general meeting in London.

The CEO also paid subtle recognition of, among the policies of other countries, the federal government’s minerals resource rent tax (MRRT), as he spoke of the need to juggle growing external cost factors.

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‘‘We have experienced very significant cost escalation in the industry, compounded by a strengthening in the currencies of key producing countries,’’ he said.

‘‘In the face of higher prices, we have also seen a trend towards some governments seeking to increase royalties and taxes, which placed further pressure on costs.’’

He later added: ‘‘collaboration between industry and government is critical to restoring cost competitiveness in our sector’’.

Call for 'competitive framework'

Mr Kloppers called on governments to support the industry's efforts to slash costs in the face of cooler demand, asking them to rein in demands on royalties, taxes and regulation.

BHP has been flagging for several months that demand growth in China for steel making materials would slow over the next few years. It now sees China's economy growing at a slower 7-8 per cent this year and around that level over the next 10 years.

"The reality is that we cannot do this heavy lifting on competitiveness alone," Mr Kloppers said, referring to job cuts, spending restraint and a re-evaluation of its portfolio that in August prompted BHP to shelve two Australian expansion plans worth at least $US40 billion.

BHP blamed soaring development costs, a high Australian dollar and falling commodity prices for pulling the projects.

But last month Queensland raised royalties for coal miners aimed at pulling in an additional $1.6 billion for the state budget over four years, which BHP said would affect its future investment decisions.

"We accept that it is our role to carry the bulk of this task (of cutting costs) ... Governments must also play their part in ensuring that those elements of the cost environment they control provide a competitive framework within which future investment is encouraged," Mr Kloppers said.

No repeat of record prices

BHP’s net earnings decreased by 15 per cent to $US27.2 billion for the 2012 financial year, in the face of China’s easing commodity demands.

Mr Kloppers said BHP did not expect a repeat of record commodity prices of the past decade, as supply and demand rebalance.

Despite the result and the company’s continued pressures, Mr Kloppers championed BHP’s ongoing ‘‘success’’ and strong shareholder returns.

‘‘Our portfolio is perfectly suited to the economic conditions that lie ahead, and it is for this reason we are even better placed to outperform our peers over the next decade,’’ he said.

Company chairman Jac Nasser addressed the meeting about executive remuneration, defending BHP’s pay formula and welcoming the actions of the Australian and UK governments to introduce greater transparency and shareholder involvement.

Outside the central London venue of Thursday’s shareholder meeting a small group of protesters braved cold and wet conditions to fly banners, including ‘‘BHP Billiton, dirty energy’’, and ‘‘BHP Billiton, stop destroying communities, lives and land for coal’’.